Herman v. Hospital Staffing Services, Inc., No. 99-2165 DV.

CourtU.S. District Court — Western District of Tennessee
Writing for the CourtDONALD
Citation236 BR 377
PartiesAlexis M. HERMAN, Secretary of Labor, United States Department of Labor, Plaintiff, v. HOSPITAL STAFFING SERVICES, INC., d/b/a Mid-South Comprehensive Home Health and d/b/a Alternative Care Medical Services and d/b/a All-Care Professional Services, Inc. and d/b/a HSSI Home Care, and Ron Lusk, Individually and as President of Hospital Staffing Services, Inc., and Capital Factors, Inc., d/b/a Capital Healthcare Financing, and Kenneth A. Welt, Trustee in Bankruptcy for Hospital Staffing Services, Inc., Defendants.
Docket NumberNo. 99-2165 DV.
Decision Date27 July 1999

236 B.R. 377 (1999)

Alexis M. HERMAN, Secretary of Labor, United States Department of Labor, Plaintiff,
v.
HOSPITAL STAFFING SERVICES, INC., d/b/a Mid-South Comprehensive Home Health and d/b/a Alternative Care Medical Services and d/b/a All-Care Professional Services, Inc. and d/b/a HSSI Home Care, and
Ron Lusk, Individually and as President of Hospital Staffing Services, Inc., and
Capital Factors, Inc., d/b/a Capital Healthcare Financing, and
Kenneth A. Welt, Trustee in Bankruptcy for Hospital Staffing Services, Inc., Defendants.

No. 99-2165 DV.

United States District Court, W.D. Tennessee, Western Division.

July 27, 1999.


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COPYRIGHT MATERIAL OMITTED
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Brian W. Dougherty, Henry L. Solano, Solicitor of Labor, Jaylynn K. Fortney, Regional Solicitor, U.S. Department of Labor, Office of the Solicitor, Nashville, TN, for Alexis M. Herman, Secretary of Labor, United States Department of Labor, plaintiff

Peter G. Herman, Tripp Scott, Fort Lauderdale, FL, for Ron Lusk, Individually and as President of Hospital Staffing Services, Inc., defendant.

Lance H. Baker, Ruden McClosky Smith Schuster & Russell, PA, Ft. Lauderdale, FL, for Capital Factors, Inc. dba Capital Healthcare Financing, defendant.

Arthur Halsey Rice, Rice & Robinson, P.A., Miami, FL, for Kenneth Welt, Trustee in Bankruptcy for Hospital Staffing Services, Inc., defendant.

ORDER DENYING DEFENDANTS' KENNETH A. WELT'S, CAPITAL FACTORS, INC., AND RON LUSK'S MOTIONS TO DISMISS

DONALD, District Judge.

Before the court are the motions of Bankruptcy Trustee, Kenneth Welt, Capital Factors, and Ron Lusk asking the court to dismiss Plaintiff's complaint for

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lack of subject matter jurisdiction pursuant to FED.R.CIV.P. 12(b)(1) and for failure to state a proper claim under FED.R.CIV.P. 12(b)(6)

The background facts which provide much of the procedural history are not controverted.

In May 1998, Defendant Hospital Staffing Services, Inc. ("HSSI") filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the Southern District of Florida.

On February 17, 1999, HSSI closed its business operations in Mississippi and Tennessee.

On February 18, 1999, HSSI closed its business operations in Connecticut, Massachusetts, New Hampshire and Rhode Island.

HSSI failed to pay statutory wages pursuant to sections 6 and 7 of the Fair Labor Standards Act ("FLSA") to its employees for work they performed during the period from January 23, 1999, to February 19, 1999.

The HSSI employees produced and handled initial assessment, admission reports and skilled nurses notes during January and February 1999 (Jan-Feb 99 clinical patient reports). HSSI employees used the clinical patient reports to produce billing documents.

On March 16, 1998, HSSI filed a voluntary petition in Bankruptcy seeking to reorganize under Chapter 11 of the Bankruptcy Code. 11 U.S.C. § 301, 1101 et seq. On February 19, 1999, Defendant, Capital Factors, Inc., forced HSSI into a converted Chapter 7 bankruptcy. 11 U.S.C. § 1112. Welt was appointed trustee of HSSI's Chapter 7 bankruptcy estate.

Welt immediately obtained possession of all of HSSI's assets, including the clinical patient reports and billing documents produced and handled by unpaid HSSI employees during the January 23 to February 18, 1999 period.

HSSI and Welt have shipped and/or are preparing for shipment in interstate commerce the Jan-Feb 99 clinical patient reports and billing documents.

On February 25, 1999, the Secretary of Labor exercised her police powers under section 17 of the FLSA by filing a complaint seeking to enjoin the defendants from violating section 15(a)(1) of the FLSA by shipping, selling and/or transporting "hot goods" in interstate commerce. On March 2, 1999, this court issued a Temporary Restraining Order ("TRO") prohibiting the defendants from violating sections 11 and 15(a)(1) of the FLSA.

On March 9, 1999, this court modified the TRO. Upon Welt's motion, this court exercised its equitable powers to permit Welt to ship and transport certain "hot goods" under this Court's supervision and control in order to 1) preserve the value of the "hot goods," and 2) to create a pool of funds with which to remedy the section 15(a)(1) violations. Over the Secretary's objection, the Court permitted Welt to retain in his Trustee account the "tainted" funds collected as a result of the court-ordered shipment of the "hot goods" pending the Court's decision on the preliminary injunction motion.

On March 23, 1999, Welt filed a Motion to Dismiss the complaint for 1) lack of subject matter jurisdiction; 2) failure to state a claim; and 3) in the alternative, for the court to abstain from exercising jurisdiction.

On March 30, 1999, this court conducted a hearing on the Secretary's motion for a preliminary injunction. The Court heard the testimony of various employee witnesses. At the conclusion of the hearing, the court extended the TRO pending the court's decision on the preliminary injunction motion.

STANDARD OF REVIEW

A motion to dismiss under FED.R.CIV.P. 12(b)(6) requires the Court to construe the complaint in the light most favorable to the

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plaintiff, accept all the complaint's factual allegations as true, and determine whether the plaintiff undoubtedly can prove no set of facts in support of the claims that would entitle relief. Meador v. Cabinet for Human Resources, 902 F.2d 474, 475 (6th Cir.), cert. denied, 498 U.S. 867, 111 S.Ct. 182, 112 L.Ed.2d 145 (1990); see also Cameron v. Seitz, 38 F.3d 264, 270 (6th Cir.1994). The Court may not grant such a motion to dismiss based upon a disbelief of the factual allegations contained in the complaint. Lawler v. Marshall, 898 F.2d 1196, 1199 (6th Cir.1990); Miller v. Currie, 50 F.3d 373, 377 (6th Cir.1995) (noting that courts should not weigh evidence or evaluate the credibility of witnesses). The Court must liberally construe the complaint in favor of the party opposing the motion. Miller, 50 F.3d at 377. However, the complaint must articulate more than a bare assertion of legal conclusions. Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 (6th Cir.1988). "The complaint must contain either direct or inferential allegations respecting all the material elements to sustain a recovery under some viable legal theory." Id.

SUBJECT MATTER JURISDICTION

The Trustee and Capital argue that the district court lacks subject matter jurisdiction because at the relevant time period, the subject entity was a debtor-in-possession under Chapter 11 of the bankruptcy code. See 11 U.S.C. § 1112. The Trustee states that "the Secretary's complaint must be dismissed because the Southern District of Florida and the bankruptcy court, by virtue of the standing order of reference, is the federal court initially seized with jurisdiction over all property of the Debtor as of March 16, 1998; thus, all other courts are prohibited from exercising jurisdiction over such matters." (Trustee's Motion to Dismiss, ¶ 5).

In addition, Welt argues that, in exercise of her police power under the FLSA, the Secretary seeks to prohibit Welt from taking possession of HSSI's clinical patient reports, billing documents and any other documents produced with information obtained therefrom. Welt contends that this Court lacks subject matter jurisdiction because the U.S. Bankruptcy Court has already taken exclusive jurisdiction over the "hot goods" pursuant to the previously filed Chapter 11 and Chapter 7 bankruptcy proceedings. Therefore, Welt asserts that this Court is precluded from exercising jurisdiction over HSSI's property because such exercise would hinder the bankruptcy court's administration of the debtor's estate. (Trustee's Motion to Dismiss, at 4).

Lack of subject matter jurisdiction may be raised at any time during the proceeding. Oliver v. Trunkline Gas Co., 789 F.2d 341, 343 (5th Cir.1986). A federal court always has the power to determine its own subject matter jurisdiction. United States v. United Mine Workers of America, 330 U.S. 258, 67 S.Ct. 677, 91 L.Ed. 884 (1947).

The automatic stay provisions of the bankruptcy code, 11 U.S.C. § 362(a)(1) and (2), operate as a stay of all judicial and administrative proceedings involving the debtor or property of the debtor's estate. 11 U.S.C. § 362(a). However, Congress exempted certain actions and entities. Section 362(b)(4) provides that the filing of a bankruptcy petition does not operate as a stay of the commencement or continuation of an action or proceeding by a governmental unit to enforce such governmental unit's policy or regulatory power. 11 U.S.C. § 362(b)(4). Section 362(b)(4) provides exemption from the automatic stay for:

(4) . . . the commencement or continuation of an action or proceeding by a government unit . . . to enforce such government unit\'s . . . police or regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an action or proceeding by a government unit to enforce
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such government unit\'s police or regulatory power.

11 U.S.C. 362(b)(4) (West 1998).

Congress intended for the police power exception to allow governmental agencies to remain unfettered by the Bankruptcy Code in the exercise of their regulatory powers. In re Commerce Oil Co., 847 F.2d 291, 295 (6th Cir.1988), (holding that Tennessee Water Quality Control Board's proceedings to fix civil liability against debtor under Tennessee Water Control Act were within "police power" exception to automatic stay in bankruptcy). As explained by the House Report1 on the previously enacted sections 362(b)(4) and (5):

Paragraph (4) excepts commencement or continuation of actions and proceedings by governmental units to enforce police or regulatory power. Thus, where a governmental unit is suing a debtor to prevent or stop violation of fraud, environmental protection, safety, or similar police or regulatory laws, or attempts to fix damages for violation of such a law,
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